Fraud concerns raised over U.S. Treasury's repeal of corporate reporting rules
By Thérèse Boudreaux | The Center Square
(The Center Square) – In a change meant to aid small businesses, the U.S. Treasury’s Financial Crimes Enforcement Network has permanently rescinded certain corporate ownership reporting requirements.
The change, however, might also complicate law enforcement’s efforts to crack down on abuses of the U.S. financial system, including trafficking and fraud, some critics worry.
“The United States Treasury has taken a step that enables criminals to continue financing and profiting from their crimes by using anonymous companies formed in the United States as their ‘getaway vehicles,’” Scott Greytak, Transparency International U.S. executive deputy director, stated.
“By exempting more than 99 percent of U.S. companies from the nation’s most powerful anti-money laundering law in a generation, the Corporate Transparency Act, Treasury has frustrated the ability of federal, state, and local law enforcement to investigate cartel finances at the precise moment when the Trump Administration claims to be exerting maximum pressure in the fight against fentanyl.”
The Treasury’s final rule, announced this week, permanently removes the requirement for U.S. companies and U.S. persons to report “beneficial ownership” information, that is, information about persons who directly or indirectly control and profit from corporations that have titles under a different name.
Only foreign entities that are reporting companies will still be required to report beneficial ownership information, and for foreign individuals, the Treasury said.
“Today’s action is a victory for common sense and American small businesses,” Treasury Secretary Scott Bessent announced Tuesday. “President Trump promised to cut red tape, and this final rule delivers. Treasury is eliminating a burdensome reporting requirement for millions of law-abiding business owners without compromising our national security.”
The rule would also completely wipe the beneficial ownership database of all previously reported information by U.S. persons.
“The Federal Reserve’s proposal is a common-sense reform that would cut bureaucratic red tape and reduce unnecessary compliance burdens,” the Bank Policy Institute, a nonpartisan group representing banks operating in the U.S., stated.
“We encourage all banking regulators to continue implementing these types of policy reforms that align regulations with modern banking practices, while having no detrimental effect on safety and soundness.”
The Treasury argued that “there are alternative sources of information to mitigate the risks posed by domestic entities,” attempting to finance criminal operations like drug trafficking through the use of anonymous registered U.S. companies.
It further stated that narrowing the reporting requirements “reflects Treasury’s focus on ensuring a targeted, risk-based approach to the collection of beneficial ownership information,” viewing “foreign illicit actors” as higher risk.
But opponents of the change, including Greytak, view it as “exceptionally troubling and unjustifiable,” pointing to previous financial abuses that the Corporate Transparency Act requirements were enacted to help prevent.
“We do not need to speculate about how cartels and other criminals will exploit today’s rule. We’ve already seen it,” Greytak added. “In the Zheng Drug Trafficking Organization case, federal prosecutors documented how the organization used front companies in Massachusetts to receive, repackage, and redistribute fentanyl and other synthetic drugs across the United States.”
The National District Attorneys Association also strongly opposes the change, with executive director Nelson Bunn arguing that it will “significantly hinder…prosecutors’ ability to identify the bad actors from legitimate businesses when investigating U.S. shell companies used by transnational cartels, human traffickers, and cyberscammers.”
Other opponents, including the Financial Accountability and Corporate Transparency (FACT) Coalition, argue the repeal of reporting requirements is unconstitutional because the Corporate Transparency Act is still law.
The Treasury disagrees with the characterization, claiming that “disagreements over the specifics of executive branch implementation” of the law “are not evidence of unconstitutional behavior.”